Mint Explainer: What keeps Chennai’s affordable housing market momentum going

Since H2 2020, the Chennai residential market has been steadily improving, with sales momentum progressively growing to 6,951 units sold in H1 2022, a 21% YoY increase, the Knight Frank report said.

Mint spoke to experts in the housing industry to understand what makes Chennai unique to continue to feature on the list and how the future of affordable housing looks like.

“Chennai’s property market has been consistently doing well over the years. The city thrives in manufacturing particularly the automotive industry and serves as a hub for ITs and logistics with its well spread out and better infrastructure offering tens of thousands of jobs making it a preferred choice,” Rajesh Lund, Joint Secretary, Confederation of Real Estate Developers’ Association of India (CREDAI) South said.

Home builders also point out that the city’s mixed economy and reasonable cost of living when compared to other metros in India as primary reasons for people to move in here.

There has also been a growing trend towards premiumization across Indian cities in almost every sector and the housing market is no exception. Industry experts say Chennai has a different approach towards this.

“Affordable homes in Chennai usually come with most of the amenities provided in premium properties such as more open spaces, swimming pools and others. These are generally priced between ₹60 lakh to ₹1.2 cr. Upmarkets on the other hand are priced between ₹1.2 cr to ₹5 cr. The hyper luxury properties have started picking up too,” Rajesh Lund also said.

Kumar, founder and Chief Managing Director of Navin Housing & Properties Ltd, one of Chennai’s top builders, said that the housing sector in Chennai is predominantly an end user market.

“Purchasers look out for liveability and there are a variety of requirements. Builders try to fit amenities equivalent to the premium markets and this is possible because of right pricing. There are no apartments in the city as low as ₹4,000/sq ft and it goes on till ₹30,000/sq ft and in fact the average property price when it comes to apartments is higher in Chennai than Bengaluru,” Kumar adds.

The industry also has deep concerns over inflation and the RBI’s repo rate hikes which has made home loans costlier.

The central bank has raised benchmark repo rate by 190 basis points since May to tackle inflation and it is expected to raise rates further till March. The inflation rate is estimated to fall under RBI’s tolerance band of 4-6% only during the first quarter of the next fiscal year.

Kumar however maintained an optimistic tone while talking about inflation and its impact on housing businesses.

“There isn’t any effect in the short term and I am confident over inflation getting back to normalcy in the next six months,” he said.

“Builders too are cautious and are taking measured decisions with an understanding of the external environment by not getting themselves committed in too many projects to keep the demand and supply balanced,” he adds.

Kumar in fact calls this the prime time for people especially the NRIs looking out to invest in appreciating assets.

Knight Frank’s report interestingly points out that the sales were concentrated in the south and west micro-markets and together accounted for 93% of the total sales during H1 2022. Mint therefore spoke to builders who work on affordable housing projects particularly in these emerging markets.

These builders too had a sanguine view towards the future of affordable housing though they find the market a bit sluggish for the last three months because of the uncertainty in the job market and the increase in home loan EMIs.

“Affordable housing is expected to thrive in the coming years, particularly those in the emerging markets as they largely cater to first time buyers. The properties built in these areas are sold at ₹40 lakh to ₹60 lakh and these are compact 2 BHK homes with basic amenities,” Saravanan, proprietor of Venus Homez said.

While talking about sales and marketing strategies in an increasingly digital world, Saravanan said that it has become mandatory to have a solid online presence of your business particularly after the pandemic. He had ruled out the idea of mediators as it hasn’t worked out personally for him unlike the reach and enquiries he gets via online and other forms of out of home and print advertising.

Business sentiment in the affordable housing segment remains strong and a favourable atmosphere for homebuyers is seen as pandemic recedes with reduced danger of disruption. With hopes of inflation getting back to normalcy in the coming months from both builders and buyers, Chennai’s affordable housing is expected to boom further.